Sky Views: Jeremy Corbyn's water vow could be costly

Ian King, Sky News Business Presenter

The water industry is under siege. According to research by the Legatum Institute think-tank, 83% of the public support Jeremy Corbyn's pledge to renationalise the water and sewerage companies privatised 28 years ago.

Even the Financial Times, which sees itself as a critical friend of business, has just run a series of attacks on the industry so splenetic one could be forgiven for thinking Thames Water had flooded the FT editor's cellar with effluent.

It accused the industry of 'ripping-off' customers.

There are, however, many reasons why renationalisation would be a waste of time and money.

First, it is worth recalling why the industry in England and Wales - it remains state-owned in Scotland and Northern Ireland - was privatised in the first place.

It was because the government of the day could see a looming need for huge investment, mainly to comply with European regulations, largely to impose higher environmental standards for Britain's rivers and coastlines and on drinking water quality.

There are, however, many reasons why renationalisation would be a waste of time and money.Ian King

Moreover, having been built by the Victorians a century earlier, many water mains in Britain's towns and cities needed replacing.

Leaks were commonplace and drinking water quality was being compromised by lead pipes. Remedying that would also require vast sums.

And it was essential to bring in private capital. The government could not carry out this investment on its own because there are always so many different demands on the public purse.

Just ask veterans of the old British Rail in its days as a nationalised company.

Frequently, government funding for new rolling stock or station refurbishments was promised, only to be taken away whenever, for example, there was an emergency call on that cash from the National Health Service.

The same was true of the water industry. The 1970s and 1980s saw the sector regularly deprived of funding, under both Labour and Conservative governments, due to tight public finances.

Standards of drinking water fell sharply in some places. River pollution rose. Vast amounts of water leaked from the old pipelines - in Liverpool, for example, half of all water was lost before ever reaching customers.

Image:Jeremy Corbyn has vowed to renationalise water and sewerage companies

Stories of double-decker buses tumbling into collapsed sewers became a stock favourite of local newspapers. And, most scandalous of all, new infrastructure went unbuilt.

The nadir came when, during the drought of 1976, millions of people in Yorkshire, Wales, the Midlands, East Anglia, Devon and Cornwall had their household water supply cut off due to shortages and were forced instead to queue in the street for water from standpipes.

Privatisation enabled investment. More than £130bn has been ploughed into the industry since 1989 - a sum unimaginable under state ownership - and standards have shot up.

There have been plenty of long, hot summers since but, thanks to investment in new reservoirs and pipes, households have not had to endure their supply being cut off as they did in 1976.

The worst households have suffered is the odd hosepipe ban.

It is often claimed finance is an obstacle to nationalisation because the government could not afford to compensate investors.

That is not strictly true because, while the state would be compensating investors, it would be getting an asset in return.

Image:Millions were left without water during the drought of 1976

The question is whether the asset could generate value for taxpayers. That would be unlikely if a nationalised water industry was forced by ministers to supply water and sewerage services on uneconomic terms.

It is also doubtful, given past experience, whether in future the state could invest as much in such services as the private sector has done since 1989.

And, given how the public sector already struggles to attract managerial talent from the private sector, there must also be a question as to whether the industry would be as well run as at present.

Nor is it the case that water customers have been ripped-off since privatisation.

Household bills have fallen in real terms in at least two of the five-year regulatory periods since privatisation in spite of the vast sums invested and will rise by less than inflation during the current five year period.

Regulator Ofwat says that had the industry stayed nationalised and investment continued on a pay-as-you-go basis, water bills would be at least 25% higher than at present.

Moreover, the service provided by water and sewerage companies, post-privatisation, is great value. The average annual household water and sewerage bill in 2017-18 will be £395.

That's £1.08 per day to supply a household all the water it needs and to take away and decontaminate dirty bath, washing and toilet water. Put that in context.

Even the most efficient modern toilets use six litres of water per flush. Six litres of the cheapest bottled water available on Tesco's website last night cost £1.02.

Image:Much of Britain's water infrastructure was built by the Victorians

Complaints about the water industry, meanwhile, are at an all-time low and, according to the independent water consumer watchdog, satisfaction with the industry is at record levels.

If there ever was a time when water customers were ripped-off it was when water was state-owned and millions of households were sometimes paying for a service that had been cut off.

It's also easy to imagine, if water were renationalised, how costs in the industry might rise - and, by extension, household bills - if water unions won national pay-bargaining rights of the kind they enjoyed under state ownership.

It's certainly unlikely that, under state ownership, bills would fall.

For example, in 1985 - several years before privatisation - ministers imposed a 10% increase in charges, despite companies like Thames Water arguing they could get by with a rise of just 3%.

A cash-strapped government could easily do something similar in future if it needed money elsewhere.

Apart from all the new infrastructure and vast improvements in environmental standards, privatisation has delivered other gains.

Since April this year, 5.4m businesses have been able to switch supplier, something an average of 12,000 have done every month since - while others have used the arrival of competition to renegotiate terms with their existing water supplier.

Competition is forcing down prices and driving up innovation, benefiting the UK's biggest water consumers, which has to be good for everyone.

Eventually, thanks to innovation in billing technology, households may also benefit from this.